Mortgage originations in February fell to their lowest level in at least 14 years due to the months-long plunge in refinancing activity and weak demand for loans to purchase new homes.

The mortgage data, from a report released earlier this week by Black Knight Financial Services, gives some heft to bearish predictions of several industry executives who have said that the U.S. mortgage market faces its greatest shift in more than a decade after an era of falling interest rates that began in 2000 ended abruptly last year.

The Mortgage Bankers Association, meanwhile, reported on Wednesday that the share of mortgage applications for refinances hit their lowest level since July 2009 last week. Refinances have been a major source of revenue for banks with every successive round of Federal Reserve stimulus over the past six years.

A drop in refinancing isn’t a major threat to the housing market, and weak loan demand for home purchases hasn’t yet hurt the market because demand remains strong from investors paying cash.

For lenders, the drop in refinancing could pose a major threat. While everyone knew the refi gravy train couldn’t last forever—at some point, loan officers will burn through the universe of borrowers who can be encouraged to reduce their rate by refinancing—the refinance boom of 2012 and 2013 ended more abruptly than many anticipated.

Mortgage rates jumped last May as the Federal Reserve hinted at a possible slowdown in its bond-buying program. The average 30-year fixed-rate mortgage jumped from 3.6% in early May 2013 to 4.6% by late June.

As the charts here indicate, refinancing is very sensitive to the direction of interest rates. Refinances rise when rates fall, and they fall when rates rise or stay flat. Mortgage rates have hovered around the 4.6% range since last summer.

Last week, the share of refinance applications fell to 51% of all loan applications, down from 84% in late 2012, when mortgage rates fell to 3.5%. And keep in mind: at 4.6%, mortgage rates are still historically low. Refinancing could fall much lower if rates climb back above 5%.

Consider what happened in 1994: rates rose from 6.7% in October 1993 to 8.7% in June 1994, and refinancing fell from 63% of loan activity to 11%. Of course, the mortgage market was much smaller then, too, meaning there were fewer jobs to slash as demand evaporated.

Lenders not only face a more competitive environment with lending demand dropping, but they must also focus more heavily on loans to buy homes, which are more time intensive than loans to refinance. The purchase-loan business tends to rely more heavily on cultivating strong relationships with real-estate agents and home-builders, who are critical in delivering customers.Some analysts have predicted that a rebound in home purchase lending will help, even though no one expects it to fully replace the lost refinancing volumes. Still, the year is off to a foreboding start on that front. Paul Miller, a banking analyst at FBR Capital Markets, cut his forecast for mortgage originations to $1.1 trillion from $1.2 trillion on Monday amid the weak first quarter numbers.

Mr. Miller estimates banks originated just $226 billion in mortgages during the first quarter, which would represent a 60% decline from a year earlier. Almost all of that drop is due to less refinancing. Anything below $240 billion would be the worst quarter for the industry since 1997, according to the MBA.

The mortgage industry’s long winter has been many years in the making. The drop in volumes should have happened around a decade ago, said Doug Duncan, chief economist at Fannie Mae. In 2003, the average 30-year fixed-rate mortgage fell to 5%, down from a peak of 8% in 2000 and 18.5% in 1981.

But two developments allowed the mortgage industry to keep production humming even after rates began to rise. First came the growth of the subprime market from 2004 to 2006, in which lenders relaxed standards, convinced that rising home prices would bail out borrowers that got into trouble.

Then in late 2008, the Fed embarked on the first of its bond purchases, known as “quantitative easing,” which brought rates back to their 2003 lows—and later, below those levels to their lowest in nearly 60 years. Additional rounds of quantitative easing, combined with government programs to help homeowners refinance even if they didn’t have any equity, generated a succession of refinance waves.

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.